The currency in the Roman Empire was the denarius, which were made out of silver. These coins were being minted less and less with silver, and the production of coins increased. Because of the drastic drop in the value of money and the increase of prices, inflation occurred.
-117 C.E., Trajan ruling: 85% silver coins
-180 C.E., Marcus Aurelius ruling: 75% silver coins
-Septimius ruling: 60% silver coins
-Caracalla ruling: 50% silver coins.
-By the year 268, there was only 0.5% in the denarius. Coins were pretty much bronze coins quickly dipped into silver.
Caracalla, the son of Septimius, debased (took the value down) the gold coinage. He used to say, "nobody in the world should have money but me; and I want it to bestow upon the soldiers."
Under Augustus’ rule, the price for a pound of gold was 45 coins. This eventually rose to 72 coins.
Between the years 258 and 275, there was a period of intense civil war and foreign invasions. The emperors simply abandoned a silver coinage.
During this time, prices in most parts of the empire rose by nearly 1,000 percent. The only people that were being paid with gold were the barbarian troops. Gold was all that they accepted.
Because of Constantine’s reforms, gold coinage began to take hold and circulate more freely.
Gold became the main currency of the Roman Empire and the poor lost their land.
Under Septimius' rule, the army doubled in size. Also, the soldiers’ salary rose from 225 denarii to 750 denarii. This contributed to inflation.
Because of inflation, Romans lost their economic freedom.
There were riots in the streets and the disappearance of goods.
Many wealthy senators’ and merchants’ were upset because their fortunes were almost worthless.
After Emperor Commodus' death in 192 C.E., civil war broke out. This resulted in complete military disorder. This situation demanded large sums of money for the maintenance and loyalty of the army.
Attempts to Stop Inflation in Rome:
Every time that the silver value of the denarius dropped, prices naturally rose. As a result of this, the government began to demand payment of taxes in kind and in services instead of coins. The government did this in order to protect its civil servants and its soldiers from the effects of inflation.
Emperor Diocletian issued the Edict on Maximum Prices. This was a massive effort by the government to limit inflation by price controls. He wanted to control inflation by setting fixed prices for goods. This Edict worked for some time, but then failed. By the year 305 C.E., coins were starting to be debased again.
Questions & People to Contact about Roman Inflation:
Were there any other measures taken to prevent inflation besides the Edict on Maximum Prices issued by Diocletian? If so, what were they?
Who was affected more by inflation, the poor or the rich? How were they affected?
For how long did the Edict on Maximum Prices last?
Garret G. Fagan, a professor in the Penn State Dept. of History. Email: ggf2@psu.edu
Email (sent 1/18):
Dear Mr. Fagan,
My name is Ellie Wong and I am a seventh grade student at Nagel Middle School in Cincinnati, Ohio. I have been working on a project in my social studies class involving the problems of the Roman Empire. My topic is inflation. I have heard that you specialize in the history of ancient Rome at Penn State. May I ask you a few questions regarding inflation in the Roman Empire?
1. Were there any other measures taken to prevent inflation besides the Edict on Maximum Prices issued by Diocletian? If so, what were they? 2. Who was affected more by inflation, the poor or the rich? How were they affected? 3. For how long did the Edict on Maximum Prices last? 4. What long term impact did hyperinflation have on the Empire?
Please respond to your earliest convenience. Thank you very much for your time and consideration!
Sincerely, Ellie Wong
Reply:
(no reply)
Current Research:
Members of the federal government have suggested to use resources like the central bank to create and maintain certain levels of inflation. "Former Fed Chair Greenspan even said that a fall in inflation rates would ruin our economy as a whole."
A little bit of inflation is actually a good thing. Many countries' banks set an inflation rate of 2-3% per year. Low inflations will keep interest rate positive and provides incentives for investment.
Taimur Baig, Director & Chief Economist, Global Markets Research, Deutsche Bank is concerned that inflation risks in food prices may pick up again in 2013.
The Federal Reserve says that the core consumer inflation is projected to run between 1.6% and 1.9% in 2013.
During inflation, some prices increase faster than others. In this way, some people are affected more than other people.
If prices are raised on goods and services, then someone's income will be raised. The faster that a price raises for an item the faster that someone makes a profit.
A periods of high, out of control inflation is called hyperinflation. In this situation, the price increases are so out of control that the concept of inflation is meaningless. There are many negative effects to hyperinflation. For example, future prices are unknown, so so it difficult to plan and make investment decisions. Hyperinflation "shreds every monetary contract." It all but guarantees that a totally different form of money will be pressed into service.
Inflation in India is rapidly going down. In just 6 months the inflation rate dropped from 14% to 6-7%.
If the inflation rate is reduced to zero, is could increase the unemployment rate. So, a low, constant inflation rate will decrease unemployment and increase economic growth.
In 2012, prices on beef, poultry, fruit, and other foods rose. Prices on pork, eggs, vegetables, and nonalcoholic beverages fell. The prices of corn and soybeans have been affected by drought. The increase of the price of these goods could cause inflation.
The ERS predicts that the 2013 inflation rate in the U.S. will be 2.5%-3.5%.
Bailouts contribute to inflation. Bailouts are loans that are given by the government to failing businesses in order to prevent the collapse of that business. When bailouts are given, the supply of money increases, since the government has to make more money. Increased money supply=lower dollar value=inflation.
Solutions to Modern Day Inflation:
The Federal Reserve policymakers (Federal Reserve Board; 7 members) evaluate changes in inflation by monitoring several different price indexes.
One of the Federal Reserve's primary tools is the consumer price index. (The consumer price index is an index of the variation in prices paid by average customers for goods and services.) They examine the price of goods on a general level so that they can make decisions about whether or not to raise interest rates.
The original job of the Fed was to organize, standardize, and stabilize the monetary system in the U.S. Now, the two main goals of the Fed are 1) maintain stable prices (control inflation) and 2) ensure maximum employment and production output. They achieve this goal by raising and lowering interest rates. In this way, they can either stimulate or slow down the economy.
By predicting increases in inflation or slow-downs in the economy, the Fed knows whether to increase or decrease the supply of money.
Laws: 1) Whoever falsely makes, forges, or counterfeits any coin or bar in resemblance or similitude of any coin of a denomination higher than 5 cents or any gold or silver bar coined or stamped at any mint or assay office of the United States, or in resemblance or similitude of any foreign gold or silver coin current in the United States or in actual use and circulation as money within the United States shall be fined under this title or imprisoned not more than fifteen years, or both.
Questions & People to Contact about Modern Day Inflation:
How does hyperinflation impact the U.S.? Is it positive or negative?
In what ways does inflation help the economy?
The ERS predicts that the 2013 inflation rate in the U.S. will be 2.5%-3.5%. How is an estimated inflation rate determined?
Is there any place in the world where the inflation rate is zero?
What is being done in the U.S. to regulate inflation?
Currently, how effective is the Federal Reserve? Is it enough to support the U.S. economy?
How does the Fed "ensure maximum employment and production output"?
Richard Volpe, a research economist in the Food Markets Branch of the Food Economics Division. Email: rvolpe@ers.usda.gov
Lee Ann Obringer, author of "How the Fed Works" article Email: laobringer@nc.rr.com
James M. Johannes, professor at University of Wisconsin-Madison, specializes in Federal Reserve policy. Email: jjohannes@bus.wisc.edu
Email (sent 1/18):
Dear Mr. Harford,
My name is Ellie Wong and I am a seventh grade student at Nagel Middle School in Cincinnati, Ohio. I have been working on a project in my social studies class involving the problem of inflation in the modern world. After reading your article titled "Believe the Hype in Hyperinflation," there is still more information that I would like to know about inflation and hyperinflation. May I please ask you some of these questions?
1. How does hyperinflation impact the U.S.? Is it positive or negative? 2. In what ways does inflation help the economy? 3. The ERS predicts that the 2013 inflation rate in the U.S. will be 2.5%-3.5%. How is an estimated inflation rate determined? 4. Is there any place in the world where the inflation rate is zero? 5. What is being done in the U.S. to regulate inflation?
Please respond to your earliest convenience. Thank you very much for your time and consideration!
Sincerely,
Ellie Wong
Reply from Tim Harford:
Ellie - Apologies, I am swamped and can't help. I do wish you good luck with your project. BestTim Email (sent 1/19):
Dear Ms. Obringer,
My name is Ellie Wong and I am a seventh grade student at Nagel Middle School in Cincinnati, Ohio. I have been working on a project in my social studies class involving the problem of inflation in the modern world. After reading your article titled "How the Fed Works," there is still more information that I would like to know about inflation, hyperinflation, and the Federal Reserve. May I please ask you some of my questions?
1. Currently, how effective is the Federal Reserve? Is it enough to support the U.S. economy?2. In what ways does inflation help the economy?3. How does the Fed "ensure maximum employment and production output"?4. How does hyperinflation impact the U.S.? Is it positive or negative? Please respond to your earliest convenience. Thank you very much for your time and consideration! Sincerely,
Ellie Wong Reply from Lee Ann Obringer: Hi Ms. Wong,
I'm sorry, but I'm not an expert on the Federal Reserve. I wrote that article about 10 years ago based on extensive secondary research. I really can't answer your questions, but I wish you luck. I'm sure there are a lot of good resources out there.
Thanks,—Lee Ann
Email (sent 1/21):
Dear Mr. Johannes,
My name is Ellie Wong and I am a seventh grade student at Nagel Middle School in Cincinnati, Ohio. I have been working on a project in my social studies class involving the problem of inflation in the modern world. After researching the Federal Reserve and its job, I still have some information that I would like to know about inflation, hyperinflation, and the Federal Reserve. I have heard that you a professor that specializes in Federal Reserve policy. May I ask you some of my questions?
1. Currently, how effective is the Federal Reserve? Is it enough to support the U.S. economy?2. In what ways does inflation help the economy?3. How does the Fed ensure maximum employment and production output?4. How does hyperinflation impact the U.S.? Is it positive or negative? Please respond to your earliest convenience. Thank you very much for your time and consideration!
Sincerely,
Ellie Wong Reply from James M. Johannes: Ellie, you ask some vary good questions. Here are some answers
1.Currently, how effective is the Federal Reserve? Is it enough to support the U.S. economy? Good question, the answer is debated by many. In general, the fed is pretty good at controlling aggregate demand in the short run (1-2 years) for things like houses and cars because these items are so dependent on interest rates and the fed can more or less control interest rates in the short run. Right now, with interest rates close to zero, the zfed has sort of maxed out and easier monetary policy, in the minds of most, will do nothing more than has already been done. I could write a book on this if we had time. It is very controversial.
2.In what ways does inflation help the economy? Not many. It really only helps borrowers because they pay their debts back in cheaper dollars. But this only happens if the interest rate the borrowers are charged does not anticipate inflation. If inflation is anticipated, interest rates just rise to incorporate the expected inflation. In other words, unanticipated inflation helps borrowers. It hurts lenders. So, in essence, it is a zero sum game for the economy. That said, high inflation usually creates uncertainty in the economy as well about not only the future of inflation but also the future of monetary and fiscal policy,. This uncertainty causes both businesses and consumers to be more careful so economic activity is usually stymied by high inflation. Again, a big topic.
3.How does the Fed ensure maximum employment and production output? The fed does not ensure maximum anything. Their goal is “full-employment” (meaning about 4-5% unemployment rate) and “price stability” (which means about 2-35 inflation). They do this by controlling interest rates. To lower rates, they increase the money supply by buying government securities from banks and dealers. To raise rates, they do the opposite. Higher rates slow down borrowing and the economy. In general, most economists believe that the fed cannot accomplish both of these goals all of the time.
4.How does hyperinflation impact the U.S.? Is it positive or negative? VERY negatively! Just study Germany after WW1. Currency becomes worthless and people resort to barter which is terribly inefficient. It also brings into question the stability of the government which impacts international trade, international borrowing and other things that impact economic well-being.
James M. Johannes Director Puelicher Center for Banking Education Aschenbrener Chair of Finance & Banking Director, Officer Education UW-Madison Wisconsin School of Business University of Wisconsin-Madison 975 University Ave Madison WI 53706 (608)265-2323
Expert Contacts: KNOWING WHAT I DO NOT KNOW
Strategic Plan for Rome
MLA Sources
My FINAL Project
Roman Research:
- The currency in the Roman Empire was the denarius, which were made out of silver. These coins were being minted less and less with silver, and the production of coins increased. Because of the drastic drop in the value of money and the increase of prices, inflation occurred.
- -117 C.E., Trajan ruling: 85% silver coins
-180 C.E., Marcus Aurelius ruling: 75% silver coins-Septimius ruling: 60% silver coins
-Caracalla ruling: 50% silver coins.
-By the year 268, there was only 0.5% in the denarius. Coins were pretty much bronze coins quickly dipped into silver.
Attempts to Stop Inflation in Rome:
Questions & People to Contact about Roman Inflation:
- Garret G. Fagan, a professor in the Penn State Dept. of History. Email: ggf2@psu.edu
Email (sent 1/18):Dear Mr. Fagan,
My name is Ellie Wong and I am a seventh grade student at Nagel Middle School in Cincinnati, Ohio. I have been working on a project in my social studies class involving the problems of the Roman Empire. My topic is inflation. I have heard that you specialize in the history of ancient Rome at Penn State. May I ask you a few questions regarding inflation in the Roman Empire?
1. Were there any other measures taken to prevent inflation besides the Edict on Maximum Prices issued by Diocletian? If so, what were they?
2. Who was affected more by inflation, the poor or the rich? How were they affected?
3. For how long did the Edict on Maximum Prices last?
4. What long term impact did hyperinflation have on the Empire?
Please respond to your earliest convenience. Thank you very much for your time and consideration!
Sincerely,
Ellie Wong
Reply:
(no reply)
Current Research:
Solutions to Modern Day Inflation:
Questions & People to Contact about Modern Day Inflation:
- Tim Harford, "The Undercover Economist". Email: undercovereconomist@gmail.com
- Taimur Baig, Director at Deutsche Bank. Email:
- Richard Volpe, a research economist in the Food Markets Branch of the Food Economics Division. Email: rvolpe@ers.usda.gov
- Lee Ann Obringer, author of "How the Fed Works" article Email: laobringer@nc.rr.com
- James M. Johannes, professor at University of Wisconsin-Madison, specializes in Federal Reserve policy. Email: jjohannes@bus.wisc.edu
Email (sent 1/18):Dear Mr. Harford,
My name is Ellie Wong and I am a seventh grade student at Nagel Middle School in Cincinnati, Ohio. I have been working on a project in my social studies class involving the problem of inflation in the modern world. After reading your article titled "Believe the Hype in Hyperinflation," there is still more information that I would like to know about inflation and hyperinflation. May I please ask you some of these questions?
1. How does hyperinflation impact the U.S.? Is it positive or negative?
2. In what ways does inflation help the economy?
3. The ERS predicts that the 2013 inflation rate in the U.S. will be 2.5%-3.5%. How is an estimated inflation rate determined?
4. Is there any place in the world where the inflation rate is zero?
5. What is being done in the U.S. to regulate inflation?
Please respond to your earliest convenience. Thank you very much for your time and consideration!
Sincerely,
Ellie Wong
Reply from Tim Harford:
Ellie - Apologies, I am swamped and can't help. I do wish you good luck with your project.
BestTim
Email (sent 1/19):
Dear Ms. Obringer,
My name is Ellie Wong and I am a seventh grade student at Nagel Middle School in Cincinnati, Ohio. I have been working on a project in my social studies class involving the problem of inflation in the modern world. After reading your article titled "How the Fed Works," there is still more information that I would like to know about inflation, hyperinflation, and the Federal Reserve. May I please ask you some of my questions?
1. Currently, how effective is the Federal Reserve? Is it enough to support the U.S. economy?2. In what ways does inflation help the economy?3. How does the Fed "ensure maximum employment and production output"?4. How does hyperinflation impact the U.S.? Is it positive or negative?
Please respond to your earliest convenience. Thank you very much for your time and consideration!
Sincerely,
Ellie Wong
Reply from Lee Ann Obringer:
Hi Ms. Wong,
I'm sorry, but I'm not an expert on the Federal Reserve. I wrote that article about 10 years ago based on extensive secondary research. I really can't answer your questions, but I wish you luck. I'm sure there are a lot of good resources out there.
Thanks,—Lee Ann
Email (sent 1/21):
Dear Mr. Johannes,
My name is Ellie Wong and I am a seventh grade student at Nagel Middle School in Cincinnati, Ohio. I have been working on a project in my social studies class involving the problem of inflation in the modern world. After researching the Federal Reserve and its job, I still have some information that I would like to know about inflation, hyperinflation, and the Federal Reserve. I have heard that you a professor that specializes in Federal Reserve policy. May I ask you some of my questions?
1. Currently, how effective is the Federal Reserve? Is it enough to support the U.S. economy?2. In what ways does inflation help the economy?3. How does the Fed ensure maximum employment and production output?4. How does hyperinflation impact the U.S.? Is it positive or negative?
Please respond to your earliest convenience. Thank you very much for your time and consideration!
Sincerely,
Ellie Wong
Reply from James M. Johannes:
Ellie, you ask some vary good questions. Here are some answers
1. Currently, how effective is the Federal Reserve? Is it enough to support the U.S. economy? Good question, the answer is debated by many. In general, the fed is pretty good at controlling aggregate demand in the short run (1-2 years) for things like houses and cars because these items are so dependent on interest rates and the fed can more or less control interest rates in the short run. Right now, with interest rates close to zero, the zfed has sort of maxed out and easier monetary policy, in the minds of most, will do nothing more than has already been done. I could write a book on this if we had time. It is very controversial.
2. In what ways does inflation help the economy? Not many. It really only helps borrowers because they pay their debts back in cheaper dollars. But this only happens if the interest rate the borrowers are charged does not anticipate inflation. If inflation is anticipated, interest rates just rise to incorporate the expected inflation. In other words, unanticipated inflation helps borrowers. It hurts lenders. So, in essence, it is a zero sum game for the economy. That said, high inflation usually creates uncertainty in the economy as well about not only the future of inflation but also the future of monetary and fiscal policy,. This uncertainty causes both businesses and consumers to be more careful so economic activity is usually stymied by high inflation. Again, a big topic.
3. How does the Fed ensure maximum employment and production output? The fed does not ensure maximum anything. Their goal is “full-employment” (meaning about 4-5% unemployment rate) and “price stability” (which means about 2-35 inflation). They do this by controlling interest rates. To lower rates, they increase the money supply by buying government securities from banks and dealers. To raise rates, they do the opposite. Higher rates slow down borrowing and the economy. In general, most economists believe that the fed cannot accomplish both of these goals all of the time.
4.How does hyperinflation impact the U.S.? Is it positive or negative? VERY negatively! Just study Germany after WW1. Currency becomes worthless and people resort to barter which is terribly inefficient. It also brings into question the stability of the government which impacts international trade, international borrowing and other things that impact economic well-being.
James M. Johannes
Director Puelicher Center for Banking Education
Aschenbrener Chair of Finance & Banking
Director, Officer Education UW-Madison
Wisconsin School of Business
University of Wisconsin-Madison
975 University Ave
Madison WI 53706
(608)265-2323